PENSIONS AND OTHER POSTRETIREMENT PLANS

The Company maintains various pension and incentive savings plans and contributed to multiemployer plans on behalf of certain union-represented employee groups. Most of the Company’s employees are covered by these plans. The Company also provides healthcare and life insurance benefits to certain retired employees. These employees become eligible for benefits after meeting age and service requirements.

The Company uses a measurement date of December 31 for its pension and other postretirement benefit plans.

In the first quarter of 2018, the Company adopted new guidance which requires the presentation of service cost in the same line item as other compensation costs arising from services by employees during the period, while the other components of the net periodic benefit are recognized in non-operating pension and postretirement benefit income in the Company’s Consolidated Statements of Operations.

On March 22, 2018, the Company eliminated the accrual of pension benefits for certain Kaplan University employees related to their future service. As a result, the Company remeasured the accumulated and projected benefit obligation of the pension plan as of March 22, 2018, and the Company recorded a curtailment gain in the first quarter of 2018. The new measurement basis was used for the recognition of the Company’s pension benefit following the remeasurement. The curtailment gain on the Kaplan University transaction is included in the gain on the Kaplan University transaction and reported in Other income (expense), net on the Consolidated Statements of Operations.

On October 31, 2018, the Company made certain changes to the other postretirement plans, including changes in eligibility, cost sharing and surviving spouse coverage. As a result, the Company remeasured the accumulated and projected benefit obligation of the other postretirement plans as of October 31, 2018, and the Company recorded a curtailment gain in the fourth quarter of 2018. The new measurement basis was used for the recognition of the Company’s other postretirement plans cost following the remeasurement.

Defined Benefit Plans. The Company’s defined benefit pension plans consist of various pension plans and a Supplemental Executive Retirement Plan (SERP) offered to certain executives of the Company.

In the fourth quarter of 2018, the Company offered certain terminated participants with a vested pension benefit an opportunity to take their benefits in the form of a lump sum or an annuity. Most of the participants that elected a lump sum benefit under the program were paid in December 2018. Additional lump sum payments were paid in early 2019. The Company recorded a $26.9 million settlement gain related to the bulk lump sum pension program offering.

In the fourth quarter of 2017, the Company recorded $0.9 million related to a Separation Incentive Program for certain Kaplan employees, which was funded from the assets of the Company’s pension plan. In the third quarter of 2017, the Company recorded $0.9 million related to a Separation Incentive Program for certain Forney employees, which was funded from the assets of the Company’s pension plan.

In the fourth quarter of 2016, the Company offered certain terminated participants with a vested pension benefit an opportunity to take their benefits in the form of a lump sum or an annuity. Most of the participants that elected a lump sum benefit under the program were paid in December 2016. Additional lump sum payments were paid in early 2017. The Company recorded an $18.0 million settlement gain related to the bulk lump sum pension program offering.

The following table sets forth obligation, asset and funding information for the Company’s defined benefit pension plans:



	Pension Plans
	As of December 31
(in thousands)	2018			2017
Change in Benefit Obligation
Benefit obligation at beginning of year	$	1,286,694		$	1,160,897
Service cost	18,221			18,687
Interest cost	46,787			47,925
Amendments	7,183			75
Actuarial (gain) loss	(81,851		)	73,191
Acquisitions	—			58,600
Benefits paid	(63,852		)	(74,506		)
Special termination benefits	—			1,825
Curtailment	(836		)	—
Settlement	(95,777		)	—
Benefit Obligation at End of Year	$	1,116,569		$	1,286,694
Change in Plan Assets
Fair value of assets at beginning of year	$	2,343,471		$	2,042,490
Actual return on plan assets	(63,715		)	375,487
Benefits paid	(63,852		)	(74,506		)
Settlement	(95,777		)	—
Fair Value of Assets at End of Year	$	2,120,127		$	2,343,471
Funded Status	$	1,003,558		$	1,056,777



	SERP
	As of December 31
(in thousands)	2018			2017
Change in Benefit Obligation
Benefit obligation at beginning of year	$	110,082		$	106,526
Service cost	819			858
Interest cost	3,865			4,233
Amendments	1,028			—
Actuarial (gain) loss	(7,552		)	4,041
Benefits paid	(5,694		)	(5,576		)
Benefit Obligation at End of Year	$	102,548		$	110,082
Change in Plan Assets
Fair value of assets at beginning of year	$	—		$	—
Employer contributions	5,694			5,576
Benefits paid	(5,694		)	(5,576		)
Fair Value of Assets at End of Year	$	—		$	—
Funded Status	$	(102,548	)	$	(110,082	)

The change in the Company’s benefit obligation for the pension plans was primarily due to the settlement gain recognized related to the bulk lump sum pension program offering and an actuarial gain recognized as a result of an increase to the discount rate used to measure the benefit obligation. The change in the benefit obligation for the Company’s SERP was due to the recognition of an actuarial gain resulting from an increase to the discount rate used to measure the benefit obligation.

The accumulated benefit obligation for the Company’s pension plans at December 31, 2018 and 2017, was $1,097.3 million and $1,261.8 million, respectively. The accumulated benefit obligation for the Company’s SERP at December 31, 2018 and 2017, was $102.2 million and $108.0 million, respectively. The amounts recognized in the Company’s Consolidated Balance Sheets for its defined benefit pension plans are as follows:



	Pension Plans				SERP
	As of December 31				As of December 31
(in thousands)	2018		2017		2018			2017
Noncurrent asset	$	1,003,558	$	1,056,777	$	—		$	—

Current liability	—		—		(6,321		)	(5,838		)
Noncurrent liability	—		—		(96,227		)	(104,244		)
Recognized Asset (Liability)	$	1,003,558	$	1,056,777	$	(102,548	)	$	(110,082	)

Key assumptions utilized for determining the benefit obligation are as follows:



	Pension Plans		SERP
	As of December 31		As of December 31
	2018	2017	2018	2017
Discount rate	4.3%	3.6%	4.3%	3.6%
Rate of compensation increase – age graded	5.0%–1.0%	5.0%–1.0%	5.0%–1.0%	5.0%–1.0%
Cash balance interest crediting rate	3.50% with phase in to 4.30% in 2021	2.23% with phase in to 3.00% in 2020	—	—

The Company made no contributions to its pension plans in 2018 and 2017, and the Company does not expect to make any contributions in 2019. The Company made contributions to its SERP of $5.7 million and $5.6 million for the years ended December 31, 2018 and 2017, respectively. As the plan is unfunded, the Company makes contributions to the SERP based on actual benefit payments.

At December 31, 2018, future estimated benefit payments, excluding charges for early retirement programs, are as follows:



(in thousands)	Pension Plans		SERP
2019	$	76,245	$	6,456
2020	$	76,715	$	6,743
2021	$	75,956	$	6,946
2022	$	75,909	$	7,078
2023	$	75,389	$	7,149
2024–2028	$	367,130	$	35,656

The total (benefit) cost arising from the Company’s defined benefit pension plans consists of the following components:



	Pension Plans
	Year Ended December 31
(in thousands)	2018			2017			2016
Service cost	$	18,221		$	18,687		$	20,461
Interest cost	46,787			47,925			51,608
Expected return on assets	(129,220		)	(121,411		)	(121,470		)
Amortization of prior service cost	150			170			297
Recognized actuarial gain	(9,969		)	(4,410		)	—
Net Periodic Benefit for the Year	(74,031		)	(59,039		)	(49,104		)
Curtailment	(806		)	—			—
Settlement	(26,917		)	—			(17,993		)
Early retirement programs and special separation benefit expense	—			1,825			—
Total Benefit for the Year	$	(101,754	)	$	(57,214	)	$	(67,097	)
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income
Current year actuarial loss (gain)	$	111,084		$	(180,885	)	$	147,779
Current year prior service cost	7,183			75			—
Amortization of prior service cost	(150		)	(170		)	(297		)
Recognized net actuarial gain	9,969			4,410			—
Curtailment and settlement	26,887			—			17,993
Total Recognized in Other Comprehensive Income (Before Tax Effects)	$	154,973		$	(176,570	)	$	165,475
Total Recognized in Total Benefit and Other Comprehensive Income (Before Tax Effects)	$	53,219		$	(233,784	)	$	98,378



	SERP
	Year Ended December 31
(in thousands)	2018			2017			2016
Service cost	$	819		$	858		$	985
Interest cost	3,865			4,233			4,384
Amortization of prior service cost	311			455			457
Recognized actuarial loss	2,403			1,774			2,659
Total Cost for the Year	$	7,398		$	7,320		$	8,485
Other Changes in Benefit Obligations Recognized in Other Comprehensive Income
Current year actuarial (gain) loss	$	(7,552	)	$	4,041		$	1,120
Current year prior service cost	1,028			—			—
Amortization of prior service cost	(311		)	(455		)	(457		)
Recognized net actuarial loss	(2,403		)	(1,774		)	(2,659		)
Total Recognized in Other Comprehensive Income (Before Tax Effects)	$	(9,238	)	$	1,812		$	(1,996	)
Total Recognized in Total Cost and Other Comprehensive Income (Before Tax Effects)	$	(1,840	)	$	9,132		$	6,489

The costs for the Company’s defined benefit pension plans are actuarially determined. Below are the key assumptions utilized to determine periodic cost:



	Pension Plans			SERP
	Year Ended December 31			Year Ended December 31
	2018	2017	2016	2018	2017	2016
Discount rate ⁽¹⁾	4.0%/3.6%	4.1%	4.3%	3.6%	4.1%	4.3%
Expected return on plan assets	6.25%	6.25%	6.5%	—	—	—
Rate of compensation increase	Age graded (5.0%–1.0%)	Age graded (5.0%–1.0%)	4.0%	Age graded (5.0%–1.0%)	Age graded (5.0%–1.0%)	4.0%
Cash balance interest crediting rate	2.23% with phase in to 3.00% in 2020	1.57% with phase in to 3.00% in 2020	1.41% with phase in to 3.00% in 2019	—	—	—

____________


(1)	As a result of the Kaplan University transaction, the Company remeasured the accumulated and projected benefit obligation of the pension plan as of March 22, 2018. The remeasurement changed the discount rate from 3.6% for the period January 1 to March 23, 2018 to 4.0% for the period after March 23, 2018.

Accumulated other comprehensive income (AOCI) includes the following components of unrecognized net periodic cost for the defined benefit plans:



	Pension Plans						SERP
	As of December 31						As of December 31
(in thousands)	2018			2017			2018			2017
Unrecognized actuarial (gain) loss	$	(313,809	)	$	(461,779	)	$	17,270		$	27,225
Unrecognized prior service cost	7,273			270			1,037			320
Gross Amount	(306,536		)	(461,509		)	18,307			27,545
Deferred tax liability (asset)	82,765			124,607			(4,943		)	(7,437		)
Net Amount	$	(223,771	)	$	(336,902	)	$	13,364		$	20,108

Defined Benefit Plan Assets. The Company’s defined benefit pension obligations are funded by a portfolio made up of a U.S. stock index fund, a relatively small number of stocks and high-quality fixed-income securities that are held by a third-party trustee. The assets of the Company’s pension plans were allocated as follows:



	As of December 31
	2018		2017
U.S. equities	53	%	53	%
U.S. stock index fund	28	%	30	%
U.S. fixed income	13	%	11	%
International equities	6	%	6	%
	100	%	100	%

The Company manages approximately 46% of the pension assets internally, of which the majority is invested in a U.S. stock index fund with the remaining investments in Berkshire Hathaway stock and short-term fixed-income securities. The remaining 54% of plan assets are managed by two investment companies. The goal of the investment managers is to produce moderate long-term growth in the value of these assets, while protecting them against large decreases in value. Both investment managers may invest in a combination of equity and fixed-income securities and cash. The managers are not permitted to invest in securities of the Company or in alternative investments. The investment managers cannot invest more than 20% of the assets at the time of purchase in the stock of Berkshire Hathaway or more than 10% of the assets in the securities of any other single issuer, except for obligations of the U.S. Government, without receiving prior approval from the Plan administrator. As of December 31, 2018, the investment managers can invest no more than 23% of the assets they manage in specified international exchanges, at the time the investment is made, and no less than 10% of the assets could be invested in fixed-income securities.

In determining the expected rate of return on plan assets, the Company considers the relative weighting of plan assets, the historical performance of total plan assets and individual asset classes and economic and other indicators of future performance. In addition, the Company may consult with and consider the input of financial and other professionals in developing appropriate return benchmarks.

The Company evaluated its defined benefit pension plan asset portfolio for the existence of significant concentrations (defined as greater than 10% of plan assets) of credit risk as of December 31, 2018. Types of concentrations that were evaluated include, but are not limited to, investment concentrations in a single entity, type of industry, foreign country and individual fund. At December 31, 2018 and 2017, the pension plan held investments in one common stock and one U.S. stock index fund that exceeded 10% of total plan assets. These investments were valued at $945.6 million and $1,079.3 million at December 31, 2018 and 2017, respectively, or approximately 45% and 46%, respectively, of total plan assets.

The Company’s pension plan assets measured at fair value on a recurring basis were as follows:



	As of December 31, 2018
(in thousands)	Level 1		Level 2		Level 3		Total
Cash equivalents and other short-term investments	$	2,068	$	269,544	$	—	$	271,612
Equity securities
U.S. equities	1,115,323		—		—		1,115,323
International equities	131,912		—		—		131,912
U.S. stock index fund	—		—		601,395		601,395
Total Investments	$	1,249,303	$	269,544	$	601,395	$	2,120,242
Payable for settlement of investments purchased, net							(115		)
Total							$	2,120,127



	As of December 31, 2017
(in thousands)	Level 1		Level 2		Level 3		Total
Cash equivalents and other short-term investments	$	73,877	$	181,638	$	—	$	255,515
Equity securities
U.S. equities	1,242,139		—		—		1,242,139
International equities	138,640		—		—		138,640
U.S. stock index fund	—		—		706,202		706,202
Total Investments	$	1,454,656	$	181,638	$	706,202	$	2,342,496
Receivables							975
Total							$	2,343,471

Cash equivalents and other short-term investments. These investments are primarily held in U.S. Treasury securities and registered money market funds. These investments are valued using a market approach based on the quoted market prices of the security or inputs that include quoted market prices for similar instruments and are classified as either Level 1 or Level 2 in the valuation hierarchy.

U.S. equities. These investments are held in common and preferred stock of U.S. corporations and American Depositary Receipts (ADRs) traded on U.S. exchanges. Common and preferred shares and ADRs are traded actively on exchanges, and price quotes for these shares are readily available. These investments are classified as Level 1 in the valuation hierarchy.

International equities. These investments are held in common and preferred stock issued by non-U.S. corporations. Common and preferred shares are traded actively on exchanges, and price quotes for these shares are readily available. These investments are classified as Level 1 in the valuation hierarchy.

U.S. stock index fund. This fund consists of investments held in a diversified mix of securities (U.S. and international stocks, and fixed-income securities) and a combination of other collective funds that together are designed to track the performance of the S&P 500 Index. The fund is valued using the net asset value (NAV) provided by the administrator of the fund and reviewed by the Company. The NAV is based on the value of the underlying assets owned by the fund, minus liabilities and divided by the number of units outstanding. The investment in this fund may be redeemed daily, subject to the restrictions of the fund. This investment is classified as Level 3 in the valuation hierarchy.

The following table provides a reconciliation of changes in pension assets measured at fair value on a recurring basis, using Level 3 inputs:



	U.S. Stock Index Fund
	Year Ended December 31
(in thousands)	2018			2017
Balance at Beginning of Year	$	706,202		$	622,865
Purchases, sales, and settlements, net	(80,000		)	(50,000		)
Actual return on plan assets:
Gains relating to assets sold	2,819			6,796
(Losses) gains relating to assets still held at year-end	(27,626		)	126,541
Balance at End of Year	$	601,395		$	706,202

Other Postretirement Plans. The following table sets forth obligation, asset and funding information for the Company’s other postretirement plans:



	Postretirement Plans
	As of December 31
(in thousands)	2018			2017
Change in Benefit Obligation
Benefit obligation at beginning of year	$	22,785		$	24,171
Service cost	892			1,028
Interest cost	620			779
Amendments	(12,473		)	—
Actuarial gain	(2,519		)	(2,830		)
Acquisitions	—			516
Benefits paid, net of Medicare subsidy	(782		)	(879		)
Benefit Obligation at End of Year	$	8,523		$	22,785
Change in Plan Assets
Fair value of assets at beginning of year	$	—		$	—
Employer contributions	782			879
Benefits paid, net of Medicare subsidy	(782		)	(879		)
Fair Value of Assets at End of Year	$	—		$	—
Funded Status	$	(8,523	)	$	(22,785	)

The change in the benefit obligation for the Company’s other postretirement plans was primarily due to the impact of amendments to the plans, including changes to eligibility, cost sharing and surviving spouse coverage, as well as the recognition of an actuarial gain resulting from an increase to the discount rate used to measure the benefit obligation.

The amounts recognized in the Company’s Consolidated Balance Sheets for its other postretirement plans are as follows:



	Postretirement Plans
	As of December 31
(in thousands)	2018			2017
Current liability	$	(1,399	)	$	(1,920	)
Noncurrent liability	(7,124		)	(20,865		)
Recognized Liability	$	(8,523	)	$	(22,785	)

The discount rates utilized for determining the benefit obligation at December 31, 2018 and 2017, for the postretirement plans were 3.69% and 3.11%, respectively. The assumed healthcare cost trend rate used in measuring the postretirement benefit obligation at December 31, 2018, was 7.41% for pre-age 65, decreasing to 4.5% in the year 2026 and thereafter. The assumed healthcare cost trend rate used in measuring the postretirement benefit obligation at December 31, 2018, was 7.96% for post-age 65, decreasing to 4.5% in the year 2026 and thereafter. The assumed healthcare cost trend rate used in measuring the postretirement benefit obligation at December 31, 2018, was 12.74% for Medicare Advantage, decreasing to 4.5% in the year 2028 and thereafter.

The Company made contributions to its postretirement benefit plans of $0.8 million and $0.9 million for the years ended December 31, 2018 and 2017, respectively. As the plans are unfunded, the Company makes contributions to its postretirement plans based on actual benefit payments.

At December 31, 2018, future estimated benefit payments are as follows:



(in thousands)	Postretirement Plans
2019	$	1,399
2020	$	1,273
2021	$	1,083
2022	$	1,015
2023	$	856
2024–2028	$	2,308

The total (benefit) cost arising from the Company’s other postretirement plans consists of the following components:



	Postretirement Plans
	Year Ended December 31
(in thousands)	2018			2017			2016
Service cost	$	892		$	1,028		$	1,386
Interest cost	620			779			1,230
Amortization of prior service credit	(1,408		)	(148		)	(335		)
Recognized actuarial gain	(3,783		)	(3,891		)	(1,502		)
Net Periodic (Benefit) Cost for the Year	(3,679		)	(2,232		)	779
Curtailment	(3,380		)	—			—
Total (Benefit) Cost for the Year	$	(7,059	)	$	(2,232	)	$	779
Other Changes in Benefit Obligations Recognized in Other Comprehensive Income
Current year actuarial gain	$	(2,519	)	$	(2,830	)	$	(14,984	)
Current year prior service credit	(12,473		)	—			—
Amortization of prior service credit	1,408			148			335
Recognized actuarial gain	3,783			3,891			1,502
Curtailment and settlement	3,380			—			—
Total Recognized in Other Comprehensive Income (Before Tax Effects)	$	(6,421	)	$	1,209		$	(13,147	)
Total Recognized in (Benefit) Cost and Other Comprehensive Income (Before Tax Effects)	$	(13,480	)	$	(1,023	)	$	(12,368	)

The costs for the Company’s postretirement plans are actuarially determined. As a result of the changes to the postretirement plans, the Company remeasured the accumulated and projected benefit obligation of the postretirement plan as of October 31, 2018. The remeasurement changed the discount rate from 3.11% for the period January 1 through October 31, 2018 to 4.04% for the period November 1 to December 31, 2018. The discount rates utilized to determine periodic cost for the years ended December 31, 2017 and 2016, were 3.31% and 3.45%, respectively. AOCI included the following components of unrecognized net periodic benefit for the postretirement plans:



	As of December 31
(in thousands)	2018			2017
Unrecognized actuarial gain	$	(22,861	)	$	(24,125	)
Unrecognized prior service credit	(7,863		)	(178		)
Gross Amount	(30,724		)	(24,303		)
Deferred tax liability	8,295			6,561
Net Amount	$	(22,429	)	$	(17,742	)

Multiemployer Pension Plans. In 2018, 2017 and 2016, the Company contributed to one multiemployer defined benefit pension plan under the terms of a collective-bargaining agreement that covered certain union-represented employees. The Company’s total contributions to the multiemployer pension plan amounted to $0.1 million in each year for 2018, 2017 and 2016.

Savings Plans. The Company recorded expense associated with retirement benefits provided under incentive savings plans (primarily 401(k) plans) of approximately $8.6 million in 2018 and $7.5 million in 2017 and 2016.